What does Russia’s invasion of Ukraine mean for the world economy? Armed conflict produces enormous consequences in the world’s economy, but even bigger damages in Europe’s economy. This Thursday (24), the stock markets plummeted around the globe, especially the Moscow stock exchange.
The Russian stock exchange fell approximately 40% after Russian troops invaded Ukraine.
Moex, the main Russian stock exchange index, had already been falling since Monday (21) after the United States declared that they could ban American financial institutions from processing transactions for large Russian banks in case the country invaded Ukraine. Today (24), the Russian ruble took part in a historic devaluation. The biggiest in one day in history after missiles were fired at Ukrainian targets. The Russian Central Bank had to make an intervention to contain the devaluation of the currency, which reached 89.98 per dollar, a 7% drop.
The natural gas pipeline network that supplies Europe passes through Ukraine tends to have its supply interrupted. Natural gas prices, which have already been the main component pressuring Europe’s inflation in 2021, climbed in Europe with the outbreak of war. According to data from Independent Commodity Intelligence Services, the price rose 29% per megawatt-hour this Thursday (24). It is very difficult and expensive to replace it with alternative energy sources since natural gas is the main fuel for heating on the continent.
The oil Brent barrel, which is the global benchmark, reached USD 105, the highest price since 2014, with a daily increase of 8.5% due to the threat of supply shortages from Russia.
In general, all commodities except iron ore have also been suffering from the crisis. Russia is the second-largest wheat exporter in the world, while Ukraine is the fourth. Wheat prices tend to be affected, since the supply chain will be impacted. There is also a need for other countries to stock up on grain. Causing an increase in demand which then affects the price. Aluminum also experienced a significant increase, with record prices. Also caused by the higher production cost of the metal due to more expensive energy.
For Brazil, in addition to the entire risk aversion scenario of the global economy that may limit the inflow of foreign capital into the country. A direct concern is the availability of agricultural fertilizers since Russia is the main supplier. If disruptions in the supply chain occur. Brazilian agriculture sector will likely see adverse reactions.
Is Russia Losing the War?
World inflation has already been a concern before the invasion and with the supply risk. As a result, analysts expect that central banks, mainly European and American. Must give tougher monetary responses with faster or greater interest rate hikes than expected in the pre-war market. The consequences of this will inevitably be a worse growth scenario, especially in Europe.
For Rafael Foscarini, Strategy Director at Belo Investment Research. The escalation of tensions and the tough economic sanctions against Russia make investors review their portfolio allocation to adjust their exposure to risky assets. Especially those related to the Russian economy!
“This new environment pushed gold up 3.3% after the invasion of Ukraine. As it is considered a safer asset and tends to rise in price during tense climates. A new fact in this scenario of heightened risks is that many analysts are monitoring the price of Bitcoin. To know if the main cryptocurrency in the world could have any behavior similar to safe assets. Since it is not controlled by any central bank, however, what was observed was a behavior opposite to this. With a devaluation of more than 8% compared to yesterday”.
What does Russia’s invasion of Ukraine mean for the world economy? Written by www.belo.re
